Mortgage Application Volume Tumbles to Lowest Levels in Nearly 30 Years as Home Costs Soar

The Federal Reserve has raised interest rates 11 times since March 2022 in its battle to curb inflation, which has led to higher mortgage rates.

Housing units in Huntington Beach, Calif., on March 17, 2023. John Fredricks/The Epoch Times

The mortgage application volume has fallen to its lowest in nearly 30 years, as monthly mortgage payments hit an all time high.

With over 7 percent 30-year mortgage rates over the past few weeks, mortgage payments have jumped to a near-record high, according to the latest data by Redfin.

At the same time, home prices—perpetuated by a lack of available existing housing—have pushed many buyers out of the market.

This has led housing demand to plunge to near-record lows due to affordability pressures.

Average Mortgage Payments Continue to Rise

The typical monthly mortgage payment rose to $2,612 with a 7.18 percent mortgage rate during the four weeks ending Sept. 3, just $18 below the record high set in May, according to Redfin.

Mortgage-purchase applications plunged 28 percent year-over-year; a drop from 2 percent in August, marking a 28-year low, according to data from the Mortgage Bankers Association (MBA).

Pending home sales are also down 12 percent year over year.

Meanwhile, soaring home prices have pulled potential homebuyers away from the housing market.

“Last week’s decline [was] driven by a 5 percent drop in refinance applications to the weakest reading since January 2023,” according to Joel Kan, MBA’s Vice President and Deputy Chief Economist.

“Purchase applications increased over the week despite the increase in rates, pushed higher by a 2 percent gain in conventional loans. Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate,” Mr. Kan added.

The median home price is now $378,725, a 4.5 percent year-over-year increase and the sharpest spike in costs since October 2022, according to Redfin.

Rising home prices are partially due to the lack of available homes, as many homeowners remain reluctant to sell the homes they purchased at the record-low mortgage rates.

The fact that there are more buyers than sellers in most of the U.S. housing markets, is another large factor.

“It’s a tough market for homebuyers in the U.S. as home values and interest rates continue to climb. The cost of homeownership has never been higher. The low inventory/high-interest rate environment is causing potential homebuyers in many markets to continue renting instead,” Colin O'Leary, Licensed Real Estate Salesperson with Berkshire Hathaway HomeServices Fillmore Real Estate in New York City, told The Epoch Times.

Household Mortgage Debt Surges in Q2 2023

Current mortgage debt is continuing to haunt many homeowners, as mortgage balances surged by $627 billion annually in the second quarter of 2023, according to the Federal Reserve Bank of New York last month.

Total mortgage balances held by American homeowners are now at $12.01 trillion.

At the same time, total household debt hit $17.06 trillion in the second quarter, increasing by $909 billion annually; and rising household credit card debt is worrying economists.

Total U.S. credit card debt surpassed $1 trillion in the second quarter for a $45 billion quarterly increase, of which at least 5.08 percent ended up in delinquency or payments at least 90 days past due in the second quarter—an annual increase of 3.35 percent.

The average interest rate for a personal loan is 11.48 percent, in contrast to the 20.68 percent average credit card interest rate, according to the latest data from the St. Louis Fed.

“Credit cards are the most prevalent form of household debt and continue to become even more widespread,” the NY Fed said. “Consider that there are 70 million more credit card accounts open now than there were in 2019, before the pandemic.

“Compared to other debt categories this quarter, credit card balances saw the most pronounced worsening in performance, following a period of extraordinarily low delinquency rates during the pandemic.”

Latest Data May Affect Federal Reserve Moves on Inflation

“The federal reserve has literally created the boom and bust cycle. We are perennially stuck inside of these cycles,” Phil Nicozisis, a real estate developer and investor, told The Epoch Times.

“People forget that for 150 years, passbook savings is what governed interest rates. The Fiat power to artificially set the price of an interest rate goes against finance 101: thou shall not ignore the price elasticity of supply and demand,” he added.

The Federal Reserve has raised interest rates 11 times since March 2022 in its battle to curb inflation, which has led to higher mortgage rates.

The Federal Open Market Committee (FOMC) will decide whether to raise rates or not, at its next policy meeting scheduled between Sept. 19 and Sept. 20.

Although the Fed was able to lower inflation rates from their 9.1 percent in June 2022, prices rose to 3.2 percent year-over-year in July, well above the central bank’s 2 percent target.

The August jobs report continued to see growth, despite signs of cooling, as 187,000 jobs were added that month, beating most predictions.

The U.S. unemployment rate jumped to 3.8 percent percent in August, up from the 3.5 percent recorded in July.

The combination of a weak housing market, persistent job growth, and the slight bump in inflation will likely be a factor in the decision by the Fed for another round of rate hikes.